Liquidity Preference

You like me. You really like me.

Well, liquidity is a good thing. And you do like it.

Being liquid means that you have cash, which gives you the option to buy stuff. And yeah, even the Amazon River shops at Amazon. So if your flavor of investment has a liquidity preference over someone else’s, then your investment, all else equal, is preferable.

Specifically, if you have liquidity preference (and usually, this is found in the form of early stage venture capital investors who are investing in companies in the form of convertible preferred stock), then you get paid before others get paid if the company is sold.

That is, if the company is sold, and your convertible preferred hasn’t converted into common shares yet. So like, if the company had raised 12 million bucks in preferred stock, which all had a liquidity preference over common, and then the whole company was sold for 15 million...then those with liquidity preference would get liquid first, i.e. they’d get their 12 mil first, then the remaining 3 mil would be sprinkled around to everyone else who is…due the dough.

So when it comes down to it, you want to have liquidity preference. You...prefer it.